Any problems with the following? A DB plan that offers voluntary lump sum payment at time of termination was frozen 1/1/2004. The AFTAP as of 1/1/2008 was 63% (though not certified). Assets have tanked (surprise). The Plan Sponsor would like to defer payment of lump sums until Plan investments have healed. The Plan would be amended in 2008 to unfreeze the formula effective 1/1/2009. As of 1/1/2009, the AFTAP is now 52% so no benefits can accue during 2009. Further, no lump sums can be distributed in 2009. As of 12/31/2009, the Plan is amended to freeze benefits as of 1/1/2010. No lump sums can be paid until the AFTAP is certified to be 60% and full lump sums cannot be paid until the AFTAP is certified to be 80%.

If a loan from the Roth source ends up being a deemed distribution, what are the tax consequences? The contributions have been in the account less than two years.

I can't find a good source that addresses this and sure appreciate any help.

Thanks!

jimmy

Does anybody have any information they would be willing to share regarding excess contributions in a tax exempt 457(b) plan that were not refunded by April 15 of the following year? Did you go ahead and make the plan an ineligible plan, which appears to make everything taxable, did you do the refund and are holding tight, did you attempt to discuss with the IRS?

Thanks!

If anyone has experience drafting a 401(k) church plan for a client and may want to pick up a referral, please contact me.

A client would like to set up a new defined benefit plan for 2008 allowing for the maximum deductible contribution. The client is a sole proprietor with no other employees. The client has past service and very high compensation in prior years.

In the case of a new plan in 2008 with no past service benefit, the minimum and maximum contribution would be the same since there is no Cushion Amount. However, if the formula is based upon years of service, then as of 1/1/2008 the accrued benefit would be 1/10th of the 415 dollar limit. The accrued benefit as of 12/31/2008 would remain unchanged from the beginning of the plan year since the participant accrues 1/10th of the 415 dollar limit as of the first day of the plan year. In this scenario, we get $0 as the Target Normal Cost and the minimum contribution is basically the 7-year amortization of the Funding Target. Under the new PPA funding rules, the maximum contribution is equal to the Funding Target, plus the Target Normal Cost, plus the Cushion Amount which is equal to 50% of the Funding Target, all reduced by fair value of assets. Everyone agree so far?

Lets assume the plan is designed such that a single lump sum is an optional form of benefit and the normal form of benefit is a single life annuity.

My Question: For purposes of determining the Funding Target, it appears that our valuation software uses the plan’s Actuarial Equivalence factor (1994 GAR at 5.0%) to calculate the lump sum at NRA and then discounts back to attained age using the funding segment rates. Does this make sense in the case of a participant who is at the 415 limit? Shouldn’t the lump sum at NRA be calculated using the 1994 GAR Mortality Table at 5.5% and then discounted back to attained age using the funding segment rates?

Furthermore, if we used an unreduced 100% joint and survivor annuity as the normal form of benefit, how should the Funding Target be calculated? It appears that our valuation software is using the plan’s Actuarial Equivalence factors (1994 GAR at 5.0%) assuming a 100% joint and survivor annuity as the normal form to calculate the lump sum at NRA and then discounts back to attained age using the funding segment rates. Does this make sense if the plan is designed such that a single lump sum is an optional form of benefit?

Any guidance, thoughts and comments would be appreciated.

Just had a handful of safe harbor 401(k) plans walk in my door. They are all on the same prototype document and the prototype sponsor has received IRS approval for its EGTRRA document. Given the timing, I was considering whether or not the safe harbor notice could be given for the plans without having to amend and restate them prior to Dec 31 (or Dec 1 depending on how you see the issue). We maintain all of our documents via a Sungard volume submitter document. In the midst of working on amendments/restatements of current clients' safe harbor 401(k) plans I am mindful of a sponsor not only having to provide the safe harbor 401(k) notice but also having to execute an amendment to specifically invoke the particular 40(k) safe harbor contribution it will be using for the coming year. Hence, my issue as to the takeover plans -- can I just provide safe harbor notice and either look to amend and restate prior to December 31, 2008 (or some time prior to April 30, 2010?) or do I need to have an amendment specifically identifying the safe harbor to be relied upon. If an amendment is required setting forth the actual safe harbor contribution to be used in addition to the safe harbor notice, then it would seem that such an amendment may affect the ability of the plan sponsor to rely on the 6 year cycle. Any help is greatly appreciated.

I retired after 26 years in a Public Safety Retirement System and entered a Defered Retirement Option Plan, where an amount of money based on the same method of calculating my retirement is placed into an account while I remain on the job. The money earns 8.50% interest. I stay on the job and agree not to acrue any additional bennifits for 5 years. I married for the first time after 2 years in DROPS and after 1 year I am getting divorced. Is my wife entitled to any of the money in the DROPS account. My plan does not address this and I can't find any case law on this. I live in Arizona. I have another 14 months before I have to leave the job.

Lets say I have a plan that is 95% funded in 2008 and qualifies for the transition rule. Therefore, I have no shortfall amortization charge since I was > 92% funded.

However, I think I still owe quarterlies in 2009 because I had a funding shortfall in 2008, even though I didn't have to amortize any of it.

Agree?

I figured this question would have been asked here before, but I couldn't find it so here goes. Do you think Rev. Rul. 79-237 still applies in this post-PPA environment and NC and amortization payments are pro rated through the plan termination date?

Dumb question...I've got a 401(k) plan that's changing its name. Do we file something with the DOL so that its not looking for a 5500 next year under the old name? I've been searching, but can't find the answer anywhere!!

If an employer wishes to cover individual premiums for dependents (i.e. lets say Medicaid) of employees, can this be done via a 125 plan? Please refer to 1.125-6(i) and 1.125-1(m)(1)

If not, anyone see any reasons why it couldn't flow through a 105 plan?

I'm preparing a volume submitter document and trying to decide what the benefit is in submitting the plan for determination regarding the ratio percentage test. Can anyone help with this? Is there any advantage to completing question 11 on the 5307?

A pension attorney recently said that there is a provision that plans are automatically frozen as a default.

That is, plans can be designed to have an automatic freeze.

He is not referring to the AFTAP test in connection with benefit restrictions.

I am not talking about making a plan amendment to freeze benefits, but more like a a standard plan provision.

Does anyone know what this attorney may be referring to?

Thanks.

Assume 457(f) DB SERP pays benefits at retirement lost as a result of limits on a "linked" qualfied plan (further assume compliance with 409A). Assume mid-year vesting after, say 5 years, meaning the present value of the accrued benefit is taxable at that time under 457(f), but ultimately paid at retirement (except for accelerated payments for withholding taxes). In years after vesting but before retirement, there will be additional accruals under the 457(f) plan due to incease in compensation and service credits.

For income inclusion purposes, I have in my head that these additional, post-vesting accruals will be taxable in the later years as they accrue (perhaps even on a month to month basis, which could have a withholding tax effect). However, I also have heard of 457(f) plans that use an "assumed retirement date" concept under which the actuaries' calculation take into account assumed future benefit accruals when determining the taxable amount in the year of vesting. My gut feeling is that the former approach is more appropriate, but I haven't come across anything definitive (perhaps b/c it is self evident?).

Defined Benefit Plan has employee contributions. My recent understanding is that if a plan allows any type of lump sum payment, it must also allow for an immediate annuity. I'm unclear however how to apply this to a DB plan where part of the accrued benefit is related to employee contributions. The plan does not normally allow for lump sum payments other than employee contributions with interest to terminated participants.

So my question is, in offering the participant the current value of their employee contributions, do we also offer them an immediate annuity which would be the actuarial equivalent of just the accrued benefit related to the employee contributions, or rather an immediate annuity of the full benefit, with or without the portion related to employee contributions.

Example of immediate annuities to a 40 year old:

eecwi portion: 15.00

ee&er portion: 75.00

lump sum taken & er portion: $65.00

Thank you.

How are assets of a Church qualified defined contribution plan held? If exempt from ERISA I assume there does not have to be a trust, but can there be a trust? Are most held in custodial accounts?

My client deposited their 2007 non elective contribution on 9/19/2008, so it was late. How is this corrected in regards to the corp. tax return and the plan? If they amend the corp tax return, can they deduct 2007 and 2008 on their 2008 return? Will that affect any testing for the plan 415, 401a4? I have never had this happen so I'm not sure what all is affected by the late deposit.

A small DB plan was adopted 1/1/2001 and was restated for GUST 1/1/2002. However, the prior opinion letter from 1/1/2001 cannot be located. Prior administrator went out of business.

The plan will now be terminated and will be submitted for a DL.

Does anyone think the IRS will require the opinion letter for the prior document (1/1/2001)? If it cannot be produced will they consider the initial plan as individually designed?

We do have an opinion letter for the GUST restatement as of 1/1/2002.

Both documents are volume plans.

We are converting a plan that was a managed by an insurance company, and durning the deconversion process they have locked up the stable value fund. The participants are allowed to transfer their assets from this investment to another investment, but when we convert the plan they will not allow the liquidation of the fund to transfer to the new custodian. Being that this is a seperate account product, we also cannot just sweep it into the same mutual fund based SVF.

It seems to me that although they have the right to do this due to some small print in the prospectus, that the government may take issue with the fact that participants are effectively forced into this investment for 12 months as their assets cannot be transfered over during plan conversion.

Does anybody know of any cases where the courts have ruled on a matter such as this, or any code section where this type of an issue is addressed?

I'm so impressed with the knowledge here. I'm starting my 8th week at a new job and I need opinions.

This company sponsors both a DB plan and a 401(k) plan (with a match). I used to work for attorneys so maybe I'm paranoid... This company routinely produced spreadsheets with "unofficial pension estimates" to participants interested in knowing their amount at NRA and other various ages (reduced). This was done to save actuarial fees. The spreadsheets my predecessor used for these are ridiculous, some with over 20 tabs, cells linked to other workbooks that I don't have, just an error waiting to happen. My predecessor and the company did this to "be nice" to employees but I'm seeing it as unnecessary risk exposure. All it takes is one wrong one to a litigious person and we have a virus in our employee population.

I am going to recommend we stop providing these and wanted to bolster that with more than just my own paranoia and training which is that you never put in writing an estimate, especially when it contains no reference to the plan doc, no caveats. It simply says this is "unofficial" and will be recalculated by the plan's actuary when you actually apply for your benefits. This plan covers approx 3,000 people.

Any input from experts out there? And it's not because I don't want to calculate the estimates, I would love to but I'm not an actuary. The spreadsheets I "inherited" however, are fraught with peril. The columns go out to HZ and the rows to about 370 for each person. YIKES! I might be able to clean them up and put in nested formulas, but I wanted to see if there was support out there in the DB / actuary world for NOT doing such estimates. Or am I just paranoid?

Thoughts anyone?? Thank you in advance!